Auto lenders push to add car loan debts to bailout

The auto lending industry jumped into the debate Tuesday over a $700-billion bailout for the U.S. financial market, warning that car loans could be choked off should lawmakers fail to restore the flow of money through Wall Street.

Lawmakers from both parties vented their anger over the problem Tuesday, while Bush administration officials warned that unless Congress acts, the U.S. credit markets could tumble into chaos and speed an economic recession.

Stock markets fell Tuesday after prospects for the original plan dimmed, but lawmakers said they understood the need to pass something, vowing that any bill will include more oversight, tougher rules for financial firms and help for people facing foreclosure or eviction.

“While Wall Street gets to sell their bad investments to the treasury, homeowners will still be saddled with mortgages they can’t afford,” said Sen. Richard Shelby, R-Ala.

“Wall Street bet that the government would rescue them if they got into trouble. That may be the bet that pays off.”

Push for more changes

Democrats and some Republicans also were pressing for more extensive changes, including limits on executive pay and requiring financial firms to sell the government stock that could recoup any profits from a revival following the bailout.

“The custom on Wall Street is when you assume the risk, you get paid for that,” said Sen. Jack Reed, D-R.I.

President George W. Bush told reporters Tuesday in New York that he had talked with world leaders about Treasury Secretary Henry Paulson’s plan.

“And now they’re wondering about our Congress,” Bush said. “And I’ve assured them as well, having spoken to the leaders of Congress of both political parties, that there is the desire to get something done quickly.”

Democrats warned that Republican support would be essential to passing any bill. House Majority Leader Steny Hoyer of Maryland called on Bush to address the nation in a prime-time speech, saying he needed to explain the need for the bailout to the American people.

Under the plan Paulson pitched to Congress last week, the treasury would buy $700 billion worth of bonds and other securities based on mortgages that banks currently can’t or won’t sell. By boosting the market for such debt, Paulson said he hopes to reset the financial system, taking out the bad loans and getting banks to begin lending again.

The alternatives drafted by Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., would allow the treasury to accept reasonable requests to modify the terms of mortgages it buys. They also would allow renters to stay in foreclosed properties as long as their payments were up-to-date. The latest versions of the bailout plan broaden the kinds of investments the treasury could buy to include troubled assets, such as actual mortgage loans.

Strain on vehicle sales

But auto lending firms are lobbying to have car loan-backed debt covered by the bailout as well.

Sen. Charles Schumer, D-N.Y., said during Tuesday’s Senate hearing that the auto lending market essentially had been closed to buyers with credit scores of less than 720 — generally considered an excellent grade. Over a year, Schumer said, such limits would shave 6 million vehicles, roughly a 35% drop, from typical annual sales of 17 million.

“Even though the workers in Buffalo and Detroit and St. Louis are blameless, they will suffer,” Schumer said.

The American Financial Services Association, a trade group of lenders, said in a statement Tuesday that the plan should be expanded to cover auto finance companies and car loans.

“As a result of the ripple effect of the credit crunch in the mortgage sector, the ability of finance companies to secure credit lines from investors has been brought to a virtual standstill,” said AFSA President and Chief Executive Officer Chris Stinebert. “Absent intervention by Congress, the ability of domestic manufacturers to finance new motor vehicle sales may come to a halt.”

Linda Becker, a spokeswoman for Chrysler LLC, said the company was looking at the proposal. GMAC spokeswoman Gina Proia declined to comment on the request, saying GMAC supported any move that would stabilize markets.

Ford Credit spokeswoman Brenda Hines said the company was not involved in any talks on the Paulson bailout plan.

Paulson said the treasury eventually would make some of the $700 billion back when it sold the assets it plans to buy, and that unfreezing credit markets would provide the most relief to all homeowners.

“The American taxpayer is already on the hook,” Paulson told a hearing of the Senate Banking, Housing and Urban Affairs Committee. “The best protection for the taxpayer and the first protection for the taxpayer is to have this work.”